ABIST Co.,Ltd. Q3 FY2025 earnings call

Governance and Risk Management Updates

• The company completed voluntary repayment of erroneously received employment adjustment subsidies; no penalties or late fees were issued as authorities did not find the error fraudulent. The CEO will lead continued governance strengthening, and a new Risk Management Promotion Office has been established following previously disclosed internal control deficiencies, supported by three dedicated committees to address risk issues.

Industry Context

• The automotive industry faces increased uncertainty from US tariff policy, but new vehicle sales from January to June 2025 recovered year-over-year, with continued global R&D investment for decarbonization and next-generation technologies. The human resources industry sees steady demand amid persistent labor shortages, with particularly strong demand for system software development talent. Competition for talent has intensified, raising hiring difficulty and pushing wages upward.

Core Operational Initiatives

• The company identifies two core strategic priorities: improving profitability and securing talent. For profitability: Continuing ongoing unit price improvement initiatives, regularly adjusting pricing to reflect domestic price and wage inflation, increasing high-difficulty project orders to match technical skill levels to higher unit prices, and expanding training to grow the pool of engineers qualified for high-unit-price projects. The company also leverages R&D for AR/AI and design solutions to drive external revenue, and uses digital tools to improve contracted business efficiency. A cross-departmental R&D committee has been implemented to speed up development and optimize resource allocation. As of the third quarter, per person monthly revenue has grown consistently since the mid-term plan launch, rising 44 thousand yen year-over-year driven by unit price improvements. Utilization of experienced engineers (excluding new graduates and entry-level talent) remains above 95%, maintaining high utilization.
• For talent acquisition: The company hit its 2025 new graduate hiring target using recruitment consultants, plans to introduce a talent pool database to build pipelines of passive candidates, implemented an average 5% wage increase in April 2025 to align with domestic wage growth, and expanded specialized training curriculums split by technical field to deliver more practical training for new hires, enabling early placement and higher utilization for new talent.

New Strategic Developments

• The company launched its new subsidiary ベトナムアビスト in Hanoi, Vietnam in April 2025, as part of its mid-term plan global/offshore development strategy, building on prior offshore experience via a partnership with a local Vietnamese firm. The subsidiary handles offshore work for Japanese client contracts and pursues direct orders from local Vietnamese manufacturers.
• Multiple AR/AI and design efficiency solutions are in development: an automated design check tool co-developed with an automotive parts maker, DiffAR (AR-based 3D shape difference detection, patent-pending, currently being pitched to existing clients), AI-powered 3D human model design, automatic license transcription, and internal design tools (automatic cross-section creation, interference checking) that are already in use to improve internal design quality and reduce costs.

Shareholder Return

• The company's core policy is to deliver stable, consistent dividends, with a target payout ratio of at least 35% of net income per fiscal year. A shareholder benefit program is also in place, with benefits distributed to shareholders as of March and September each year.

For the design development outsourcing business (the company's core business), the overall segment posted 7.888 billion yen in total revenue for the third quarter of the 2025 September fiscal year, a 6.2% increase year-over-year. It is split into two sub-segments: 1. Dispatch (派遣): Revenue increased 1.7% year-over-year, with per person monthly revenue reaching 676 thousand yen, an increase of 40 thousand yen year-over-year. 2. Contracted (請負): Revenue increased 10.5% year-over-year, driven by unit price improvement and strict selection of high-unit-price projects. Per person monthly revenue reached 846 thousand yen, an increase of 40 thousand yen year-over-year. Contracted business accounts for 58.3% of total segment revenue, maintaining a high proportion.

• The mid-term management plan target for the 2027 September fiscal year remains unchanged at 12.5 billion yen in total revenue and 1.3 billion yen in ordinary profit, with no upward or downward revision. Management confirmed that existing strategic initiatives will be implemented steadily to return the company to growth starting from the 21st fiscal year, after a period of flat profit since 2020.
• Management will continue ongoing contract renegotiations to achieve further unit price improvements aligned with rising wages and inflation, to drive revenue and profit growth.
• The company will accelerate R&D development for new digital solutions to expand new revenue streams and improve internal operational efficiency.

• Intensified competition for engineering talent has increased hiring difficulty and pushed wages upward, with recent wage increases pressuring near-term profitability and stagnant engineer headcount limiting revenue growth.
• Rising domestic inflation and wage growth require ongoing unit price adjustments to maintain profitability, and delays or failures in contract renegotiations could negatively impact margins.
• Prior internal control deficiencies and the erroneous employment subsidy receipt have damaged stakeholder trust, requiring ongoing governance and risk management investment to address.
• The automotive industry (the company's core end market) faces heightened uncertainty from US tariff policy, which could impact client R&D investment levels.

Q: What is the company's policy on the mix of dispatch versus contracted work in the design development outsourcing business? / A: The company will continue to view both business models as equally important going forward. Contracted work (both on-site at client facilities and off-site at Avist's own facilities) typically carries higher unit prices since Avist takes full responsibility for delivery to the client, and Avist already has a high contracted business mix which is a core characteristic. Dispatch work helps improve engineer utilization and technical skill through appropriate talent placement, and many contracted engagements grow out of successful dispatch work. The company will continue to flexibly accommodate both business models.

Q: What is the company's philosophy on employee training and development? / A: Avist views people as its most important capital, and improving technical skill through training is the key to business expansion. For new graduates, the company delivers centralized foundational training, followed by on-the-job training at client sites to deepen specialized expertise. It also runs management training to improve soft skills for leaders, to support better client relationship building and workplace improvement. Skill mapping is used to visualize each employee's strengths and gaps, to support targeted development and career planning that drives overall organizational growth.

Q: How is Avist addressing carbon neutrality through its design development business? / A: Avist contributes to carbon neutrality through its product design work for clients. The company is focusing on growing orders for lightweight design of resin and automotive interior/exterior parts, topology optimization design, and design work for EV and FCV technologies, all of which support decarbonization goals. Avist views this as a high-growth strategic area and will continue to prioritize this work to address global societal environmental challenges.